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Type of Securities Investment Strategies Fundamental Analysis Technical Analysis
Understanding Financial Statements Income Statement Analysis Balance Sheet Analysis Cash Flow Analysis Shareholders' Equity Analysis Ratios and Definitions


Balance Sheet Analysis

 - Leverage and financial
   strength affect share value

 - Liquidity concerns can
   decimate a business

 - Cash is critical, to a point
    * Window Dressing
    * Cash Gap
    * Cash per Share
    * Burn Rate

 - Marketable Securities

 - Receivables are interwoven
    with cash flow
    * Past Dues and Write-offs
    * Receivables turnover ratios
    * Securitizations

 - Inventory - focus on the
   profit margins
    * Perpetual vs. Periodic
       Inventory
    * Inventory Accounting
       Calculation
    * Inventory Costing Methods
    * Lower of Cost of Market
    * Inventory Categories
    * Inventory Turnover Ratios

 - Fixed assets are necessary in
   order to be a world class
   company

 - Liabilities with equity attributes
   are enriching

 - Emphasizing debt net of cash
   can be misleading

 - Book value is a tool to
   properly evaluate a stock

 - Off-balance sheet assets and
   liabilities are legal

 

 


Past Dues and Write-offs

Companies monitor trade receivables by the number of days outstanding, usually 30, 60, 90, 120, etc. Credit risks vary, but between 90 and 120 days past due, a receivable becomes impaired. Depending on the credit, collateral and surrounding issues, by 180 days past due the receivable should be written down to its net realizable value. Recoveries, however, may still be possible. This is one of the areas that investors should monitor.

Manufacturing companies are in a peculiar situation; often to be competitive, to generate sales (thus profits), they must offer short-term or long-term financing to their customers. If product financing is granted without adequate credit review or proper legal documentation, future unanticipated losses can occur. Many of the telecommunication equipment companies in the late 1990’s were involved in vendor financing programs without proper lending expertise; ultimately resulting in major losses for them and their shareholders.

Keep in mind, that with installment sales, extended term receivables, loans, leases, and the like, if one payment is over 90 days past due, the whole remaining balance is also credit impaired. 

 

 

 

 

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